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PETITIONER: KASTURI LAL LAKSHMI REDDY

       Vs.

RESPONDENT: STATE OF JAMMU AND KASHMIR & ANOTHER

DATE OF JUDGMENT09/05/1980

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. TULZAPURKAR, V.D. PATHAK, R.S.

CITATION:  1980 AIR 1992            1980 SCR  (3)1338  1980 SCC  (4)   1  CITATOR INFO :  D          1984 SC 415  (6)  F          1985 SC1147  (12)  R          1986 SC 180  (39)  RF         1986 SC1003  (1,6,7)  R          1987 SC 251  (37)  R          1987 SC 558  (15)  R          1987 SC1086  (28)  R          1987 SC1109  (30,36)  RF         1988 SC 157  (8,10)  R          1988 SC1989  (12)  F          1989 SC1629  (4,14)  F          1989 SC1642  (25,26,27)  RF         1991 SC 537  (29)  RF         1991 SC1153  (12)  RF         1992 SC   1  (132)

ACT:      Government contracts-Limitations  on the  Government to grant   contracts-Test    of    reasonableness-Concept    of reasonableness and  concept of  public interest,  explained- Articles 14 & 19 of the Constitution.

HEADNOTE:      Resin is a forest produce extracted from certain pieces of trees  popularly known  as Chir  trees.  The  process  of extraction is  called tapping,  involves several  steps, and requires  employment   of  skilled  labour  and  involves  a considerable amount  of expenditure.  The State  of Jammu  & Kashmir started  tapping operation  in respect  of its  Chir trees since  about  1973  by  giving  contracts  to  private parties  for   extraction  and   collection  of  resin.  The contracts were  of three  types; one  was contract  on  wage basis commonly  known as  wage contract  which was  given by auctioning the  blazes to  the person  who was  prepared  to undertake the  work of extraction and collection of resin at the lowest  rates of labour charges and in such contract the entire resin extracted and collected by the contractor would belong to  the State  and the  contractor would  be entitled only to  the wage  or  labour  charges  for  extraction  and collection of  resin; the second type of contract was on the basis of  royalty without load and under this contract which

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was given  by auction stipulating for payment of royalty per blaze, the  entire resin  extracted  and  collected  by  the contractor would  belong to him and he would be free to sell or process it as he likes; the third type of contract was on the basis of royalty with load and under this contract which was also given by auction, the royalty was payable per blaze and out of resin extracted and collected by the companies, a certain part  would have  to be  surrendered to  the  State, while the balance would remain with the contractor.      Every year,  the State  auctioned  the  blazes  in  the different forests within its territory and about 40 per cent of the  forests were  given on royalty basis, some with load and some  without load,  while the  balance of  about 60 per cent  were  given  on  wage  contract  basis.  Most  of  the contractors  bidding   at  the  auction  were  having  their factories outside  Jammu &  Kashmir either  in  U.P.  or  in Punjab. The  State in  furtherance of  its policy  to  bring about rapid  industrialisation decided  that from  the  year 1979-80 onwards  the resin extracted from its forests should not be allowed to be exported outside the territories of the State and  should be  utilised only  by  industries  set  up within the State. The State, in fact, entered into contracts with  three  manufacturers,  namely,  Prabhat  Turpentine  & Synthetics Pvt.  Ltd., Dujedwala  Resin and  Turpentine  Co. Ltd. and Pine Chemicals Ltd. Under these contracts the three manufacturers agreed  to set  up factories  in the State for the manufacture  of resin  turpentine and  other derivatives and the  State agreed to make available to them respectively an ensured  supply of  4000, 3500  and 8000 metric tonnes of resin per  year. The  State had  also commitments  to supply resin to  its own concerns namely, J&K Industries Ltd. which was  running   a  factory   for  manufacture  of  resin  and turpentine as  also to  various small  scale units which are set up in the State. Since 1339 the total  requirement of  these 24,000 metric tonnes always fell short it was decided at a meeting held on 9th December, 1976 of  the Forest officials that the increase of target of production could  be achieved  only through  replacement  of royalty contracts  by wage  contracts wherever  possible and hence in  future blazes should be auctioned for tapping only on wage contract basis.      There were certain forests in Resin and Ramban Division of the  State which  was out  of access  on account of their distance from  the roads  and so  were some  forests in  the Poonch Division  near the  line of  actual control and there were 1,28,856  blazes  situated  in  the  lower  regions  of inaccessible forests  and no  contractors could be found for taking tapping  contracts  even  on  the  basis  of  royalty without load  for  blazes  in  the  higher  regions  of  the inaccessible areas.  In the  Rasi Division  out of  6,08,115 blazes which  were attempted  to be given for tapping in the year 1976-77  on royalty  contract basis  without load, only 1,28,856 blazes  were taken  by one Prem Kumar Sood and that too on royalty of only Rs. 2.55 per blaze as against royalty of about  Rs. 6  per blaze  obtained by  the State  in other inaccessible areas  by giving contract on royalty basis with load of  3 Kg.  per blaze.  For the year 1978-79 no one came forward to  make a  bid for  taking  the  contract  even  on royalty basis without load, with the result that practically no tapping  was done  from  these  6,08,115  blazes  in  the forests of  the Rasi  division upto 1979-80. There were also some new  blazes marked  in the forests of the Rasi division for the year 1979-80 and out of them 4,20,340 blazes were in areas which were inaccessible on account of their being at a

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distance of  8 to 40 kilometers from the road side. Even out of the  old 6,08,115  there were  3,10,604 blazes which were situated in  the same category of inaccessible areas. So far as the  forests in  the Ramban  Division are concerned there were 1,24,400 blazes which were equally inaccessible "due to long lead up to coupe boundaries and transit depots" and the position in  regard to  3,30,000  blazes  which  were  under tapping in  Poonch Division  was also similar to that of the inaccessible areas  in Rasi  and Ramban  Division  with  the additional handicap  of their  being situated along the line of actual  control. There  were thus  in all about 11,85,414 blazes in  the Rasi,  Ramban and  Poonch Division which were inaccessible areas  and having  regard to  the high  cost of extraction and  collection of  resin as also the scarcity of trained labour  in those  areas it  was not possible to give out those blazes by auction on wage contract basis. The past experience showed  that even on the basis of royalty without load contractors  were not  forthcoming for taking contracts in respect  of blazes  in the inaccessible areas of the Rasi Division and  giving out of the aforesaid blazes in the Rasi Ramban and  Poonch Division  on  wage  contract  basis  was, therefore,  almost  an  impossible  proposition.  The  Chief Conservator of Forests and other Forest Officers accordingly decided at  the meeting  held on December 9, 1978 that those blazes could  not be  tapped through  wage contract  because "apart from  the total  non-availability of  local labour in these areas  cost of production due to long lead up to coupe boundaries and  transit depots would be prohibitive" and all such areas  should,  therefore,  be  excluded  from  tapping through wage  contract. These decisions taken at the meeting on 9th December, 1978 were confirmed at a subsequent meeting which  took   place  between  Forest  Minister,  the  Forest Secretary, the  Chief Conservative  Forest Officer and other Forest Officers  on 26th  December,  1978.  It  was  further decided in  this  meeting  that  the  "departmental  tapping through wage  contract should be confined to accessible Chir forests"  only  and  so  far  as  11,85,414  blazes  in  the inaccessible areas  of the  Rasi, Ramban and Poonch Division are concerned the consensus was that "these blazes should be allotted to some private party 1340 as procurement of resin from them through wage contracts was not feasible  being difficult and costly" and "the financial status and experience in extraction of resin from forest and its distillation  in the factory should be decisive factors" in  regard   to  such   allotment.  Therefore,   the  second respondent who  had earlier  addressed a  letter dated  15th April, 1978  to the  State Government  offering to  set up a factory for  manufacture of  resin turpentine  oil and other derivatives in  the State with the latest know-how under the supervision of the State Government and seeking allotment of 10,000 metric  tonnes of resin annually for the purpose was, by an  Order of the State Government dated 27th April, 1979, sanctioned  allotment   of  11.85   lacs   blazes   in   the inaccessible areas  of Rasi, Ramban and Poonch Divisions for a period  of 10 years on the terms and conditions set out in the order.      The petitioners,  thereupon challenged  this order made by the State Government under Article 32 of the Constitution on the  grounds, namely,  (a) that  the order  is arbitrary, mala fide  and not  in public  interest, inasmuch  as a huge benefit has  been conferred  on the  2nd respondents  at the cost of  the State; (b) the order creates monopoly in favour of the 2nd respondent who is a private party and constitutes unreasonable restriction  on the right of the petitioners to

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carry on  tapping contract  business under  Art. 19(1)(g) of the Constitution; and (c) the State has acted arbitrarily in selecting the  2nd respondent for awarding tapping contract, without affording  any opportunity to others to complete for obtaining such  contract and this action of the State is not based  on   any  rational  or  relevant  principle  and  is, therefore, violative  of Art. 14 of the Constitution as also of the  rule of  administrative Law which inhibits arbitrary action by the State.      Dismissing the petitions, the Court ^      HELD: (1)  With the  growth of  the welfare  state, new forms of  property in  the shape  of Government  largess are developing, since  the Government  is increasingly  assuming the role  of regulator  and dispenser of social services and provider of  a large  number  of  benefits  including  jobs, contracts, licences,  quotas, mineral  rights etc.  There is increasing  expansion   of  the   magnitude  and   range  of governmental functions,  as we  move closer  to the  welfare state, and  the result  is that  more and more of our wealth consists of these new forms of property. Some of these forms of wealth  may be  in the  nature of  privilege. The law has however not  been slow  to recognise  the importance of this new kind  of wealth  and  the  need  to  protect  individual interest in  it and  with that end in view, it has developed new  forms  of  protection.  Some  interests  in  Government largess,  formerly   regarded  as   privileges,  have   been recognised as  rights, while  others have  been given  legal protection not  only by  forging procedural  safeguards  but also  by  confining,  structuring  and  checking  Government discretion in  the matter of grant of such largess. [1354 F- H, 1355 A]      The discretion  of the  Government is  not unlimited in that the  Government cannot  give largess  in its  arbitrary discretion or  at its  sweet will  or on  such terms  as  it chooses  in   its  absolute   discretion.  There   are   two limitations imposed  by law  which structure and control the discretion of the Government in this behalf. The first is in regard to  the terms on which largess may be granted and the other, in  regard to  the persons  who may  be recipients of such largess. [1355 A-B]      So far  as the  first limitation is concerned, it flows directly from  the thesis that, unlike a private individual, the State cannot act as it pleases in the matter 1341 of giving  largess. Though  ordinarily a  private individual would be  guided by  economic considerations of self-gain in any action  taken by him, it is always open to him under the law to  act contrary  to  his  self-interest  or  to  oblige another in  entering into  a contract  or dealing  with  his property. But  the Government is not free to act as it likes in granting  largess such  as awarding a contract or selling or leasing  out its  property. Whatever be its activity, the Government is  still  the  Government  and  is,  subject  to restraints inherent in its position in a democratic society. The constitutional  power conferred on the Government cannot be exercised  by it  arbitrarily or  capriciously or  in  an unprincipled manner;  it has  to be exercised for the public good. Every  activity of the Government has a public element in it  and it  must therefore,  be informed  with reason and guided  by  public  interest.  Every  action  taken  by  the Government must be in public interest; the Government cannot act arbitrarily  and without  reason and  if  it  does,  its action would  be liable to be invalidated. If the Government

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awards a  contract or leases out or otherwise deals with its property or  grants any other largess, it would be liable to be  tested   for  its   validity  on   the  touch-stone   of reasonableness and  public  interest  and  if  it  fails  to satisfy  either  test,  it  would  be  unconstitutional  and invalid. [1355 B-F]      Ramana Dayaram  Shetty  v.  The  International  Airport Authority  of   India  &  Ors.  [1979]  3  S.  C.  R.  1014, reiterated.      (2)  In   forming  his   own  conception   of  what  is reasonable, in  all the circumstances of a given case, it is inevitable that  the social  philosophy  and  the  scale  of values of  the judge  participating in  the decision,  would play  an   important  part,   but  even   so,  the  test  of reasonableness is  not a  wholly  subjective  test  and  its contours are  fairly  indicated  by  the  Constitution.  The concept  of  reasonableness  in  fact  pervades  the  entire constitutional scheme.  The  requirement  of  reasonableness runs like  a golden  thread through  the  entire  fabric  of fundamental rights  and, as  several decisions of this Court show, this  concept of  reasonableness  finds  its  positive manifestation and  expression in  the lofty  ideal of social and  economic   justice  which  inspires  and  animates  the Directive Principles. Article 14 strikes at arbitrariness in State action  and since  the principle of reasonableness and rationality, which  is legally as well as philosophically an essential  element  of  equality  or  non-arbitrariness,  is projected  by  this  article,  it  must  characterise  every governmental action,  whether it  be under  the authority of law or in exercise of executive power without making of law. So also  the concept  of  reasonableness  runs  through  the totality of  Art. 19  and requires  that restrictions on the freedoms of  the citizens,  in order to be permissible, must at the  least be  reasonable. Similarly  Art. 21 in the full plenitude of  its activist magnitude as discovered by Maneka Gandhi’s case,  insists that no one shall be deprived of his life or personal liberty except in accordance with procedure established by  law and  such procedure  must be reasonable, fair and just. [1355 G-H, 1356 A-D]      State of  Madras v.  V. G.  Rao [1952]  SCR 597; Maneka Gandhi v.  Union of India [1978] 2 SCR 621; E. P. Royappa v. State of Tamil Nadu [1974] 2 SCR 348 referred to.      (3) The  Directive Principles concretise and give shape to the  concept of  reasonableness envisaged in Articles 14, 19 and  21 and  other Articles  enumerating the  fundamental rights. By defining the national aims and the constitutional goals,  they   set  forth   the  standards   or   norms   of reasonableness which  must guide  and  animate  governmental action. Any action taken by the Government 1342 with a  view to  giving effect  to any  one or  more of  the Directive  Principles   would  ordinarily,  subject  to  any constitutional or  legal  inhibitions  or  other  overriding considerations, qualify  for being  regarded as  reasonable, while an  action which  is inconsistent with or runs counter to a  Directive Principle  would incur the reproach of being unreasonable. [1356 D-F]      (4) The  concept of  public interest  must  as  far  as possible  receive   its  orientation   from  the   Directive Principles.  What   according  to   the   founding   fathers constitutes the  plainest requirement  of public interest is set out  in the  Directive Principles  and they  embody  par excellence the  constitutional concept  of public  interest. If, therefore  any  governmental  action  is  calculated  to

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implement or  give effect to a Directive Principle, it would ordinarily, subject  to any other overriding considerations, be informed with public interest. [1356 A-H, 1357 A]      (5) Where  any governmental action fails to satisfy the test of  reasonableness and  public interest and is found to be wanting  in the qualities of reasonableness or lacking in the element  of public  interest, it  would be  liable to be struck down  as invalid.  It  must  follow  as  a  necessary corollary from  this proposition  that the Government cannot act in  a manner  which would benefit a private party at the cost of the State; such an action would be both unreasonable and contrary  to public interest. The Government, therefore, cannot, for  example, give  a contract  or sell or lease-out its property  for a consideration less than the highest that can be  obtained for  it, unless  of course  there are other considerations which  render it  reasonable  and  in  public interest to  do so.  Such considerations  may be  that  some Directive Principle  is sought to be advanced or implemented or that  the contract  or the  property is  given not with a view, to earning revenue but for the purpose of carrying out a welfare  scheme for  the benefit  of a particular group or section of  people deserving  it or  that the person who has offered a  higher consideration  is not  otherwise fit to be given the contract at the property. These considerations are referred to only illustratively for there may be an infinite variety of  considerations which  may have  to be taken into account by the Government in formulating its policies and it is on  a total  evaluation of  various considerations  which have weighed  with the  Government in  taking a  particulars action, that  the Court  would have  to decide  whether  the action  of  the  Government  is  reasonable  and  in  public interest. [1357 A-E]      But one  basic principle  which must guide the Court in arriving at its determination on this question is that there is always  a  presumption  that  the  Government  action  is reasonable and  in public  interest and  it is for the party challenging its  validity to  show that  it  is  wanting  in reasonableness or is not informed with public interest. This burden is  a heavy  one and  it has  to be discharged to the satisfaction of  the Court  by proper and adequate material. The Court cannot lightly assume that the action taken by the Government  is   unreasonable  or  without  public  interest because, there  are a  large number of policy considerations which must  necessarily weigh  with the Government in taking action  and  therefore  the  Court  would  not  strike  down governmental action  as invalid on this ground, unless it is clearly satisfied  that the action is unreasonable or not in public interest.  But where  it is so satisfied, it would be the plainest  duty of  the Court  under the  Constitution to invalidate the  governmental action. This is one of the most important function  of the  Court and  also one  of the most essential for preservation of the rule of law. [1357 E-H] 1343      It is imperative in a democracy governed by the rule of law that  governmental action must be kept within the limits of the law and if there is any transgression, the Court must be ready  to condemn  it.  It  is  a  matter  of  historical experience that  there is  a tendency in every government to assume more  and more powers and since it is not an uncommon phenomenon in  many countries  that the legislative check is getting diluted,  it is  left to the Court as the only other reviewing   authority   under   the   Constitution   to   be increasingly vigilant  to ensure observance with the rule of law and  in this  task, the  Court must not finch or falter. This ground  of invalidity,  namely, that  the  governmental

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action is  unreasonable or  lacking the  quality  of  public interest, is  different from  that of  mala fides  though it may, in  a given case, furnish evidence of mala fides. [1358 A-C]      (6) The  second limitation  on the  discretion  of  the Government in  grant of  largess is in regard to the persons to whom  such largess  may be granted. The Government is not free  like   an  ordinary   individual,  in   selecting  the recipients for its largess and it cannot choose to deal with any  person  it  pleases  in  its  absolute  and  unfettered discretion.  The  law  is  now  well  established  that  the Government need  not deal with anyone, but if it does so, it must do  so fairly without discrimination and without unfair procedure. [1358 C-E]      Where  the  Government  is  dealing  with  the  public, whether by  way of giving jobs or entering into contracts or granting other  forms of  largess, the Government cannot act arbitrarily  at   its  sweet   will  and,   like  a  private individual, deal  with any person it pleases, but its action must be  in conformity  with some  standard or norm which is not arbitrary,  irrational or  irrelevant. The  governmental action must  not be  arbitrary or  capricious, but  must  be based on  some principle  which meets the test of reason and relevance. [1358 B]      In the instant case;      A.  The   impugned  order   cannot  be   said   to   be disadvantageous to  the State  or in  any way  favouring the second respondents at the cost of the State. [1363 B]      (i) It was not a tapping contract simpliciter which was intended to  be given  to the  second respondents. The whole object of  the impugned  order was  to make  available  3500 metric tonnes  of resin  to the  second respondents  for the purpose of  running the  factory to be set up by them. [1361 B, E]      (ii) The  advantage to the State was that a new factory for  manufacture   of  resin,   turpentine  oil   and  other derivatives would  come up  within its  territories offering more job  opportunities to  the State  and increasing  their prosperity and augmenting the State revenues and in addition the State  would be assured of a definite supply of at least 1500 metric tonnes of resin for itself without any financial involvement or  risk and  with this  additional quantity  of resin available  to it,  it would  be able to set up another factory creating more employment opportunities. [1361 E-G]      (iii) The  State would  be able to secure extraction of resin from  the inaccessible areas on the best possible term instead of allowing them to remain unexploited or given over at ridiculously low royalty. [1361 E-H]      (iv) No  huge  benefit  was  conferred  on  the  second respondents at  the cost  of the  State. The  terms  of  the contract made it clear that the second respon- 1344 dents would  have to  extract at least 5000 metric tonnes of resin from  the blazes  allotted to  them  in  order  to  be entitled to retain 3500 metric tonnes. [1362 A-B]      (v) Under  the impugned  order the State would get 1500 metric tonnes  of resin  at the rate of Rs. 114/-per quintal while the second respondent would have to pay at the rate of Rs. 474/-  per quintal for the balance of 3500 metric tonnes retained by them. Obviously, a large benefit would accrue to the State under the impugned order. If the State were to get the blazes  in these  inaccessible areas tapped through wage contract, the  minimum cost  would be Rs. 175/- per quintal, without taking  into account  the additional  expenditure on account of  interest, but under the impugned order the State

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would get  1500 metric  tonnes of resin at a greatly reduced rate of  Rs. 114/-  per quintal  without any risk or hazard. The State would also receive for 3500 metric tonnes of resin retained by  the second  respondent price  or royalty at the rate of  Rs. 474/-  per quintal  which would  be much higher than the  rate of  Rs. 260/-  per quintal at which the State was allotting resin to medium scale industrial units and the rate of Rs. 320/-per quintal at which it was allotting resin of small scale units within the State. [1362 G-H, 1363 A-B]      B. The  impugned order  neither created any monopoly in favour of  the second  respondent nor  imposed  unreasonable restriction on  the right  of the  petitioner  to  carry  on tapping business under Article 19(1)(g). [1364 D]      (i) The impugned order did not hand over the tapping of the entire  forest area  in the State exclusively to the 2nd respondent so  as to  deny the  opportunity of  tapping  any forest areas  to the  petitioner. What  was done  under  the impugned order  was merely  to allot 11,85,414 blazes in the inaccessible areas  of Rasi,  Ramban and Poonch divisions to the 2nd  respondent so  that the  respondent could  have  an assured supply  of 3500  metric  tonnes  of  resin  for  the purpose of  feeding the  factory to be set up by them in the State and  a large  number of  blazes amounting  to about 60 lacks in other forest areas of the State were left available for tapping by the petitioners and other forest contractors. [1364 D-G]      (ii) The  petitioner and other forest contractors could bid for  wage contract  in respect of the other blazes which were more than five times in number than the blazes allotted to the  second respondent.  The petitioners in writ petition 481  of   1979,  in  fact,  obtained  a  wage  contract  for extraction of  resin from  an easily  accessible  forest  in Rajouri Division  for the aggregate sum of Rs. 2,80,250/- in the year  1979-80 and though it is true that the petitioners in writ petition No. 482/79 did not obtain any wage contract for tapping in this year, it was not because blazes were not available for  tapping, but  because the  petitioner did not get their registration renewed. [1364 F-H]      C. Neither  the impugned  order in favour of the second respondents could  be said to be arbitrary and unreasonable. [1365 A]      (i)  The   State  was   not  unjustified  in  excluding 11,85,414 blazes situated in the inaccessible areas of Rasi, Ramban and  Poonch divisions  from the  auctions, since  the past experience  showed that  even on  the basis  of royalty without load,  it was  difficult to  attract bidders and the maximum that  could be  obtained, and  that too  only in one solitary year,  was Rs.  2-55 per  blaze without load, which was an absurdly low return and it was, therefore, felt quite 1345      justifiably, that  it would  be futile to include these blazes in  the auctions  for tapping on wage contract bases. The State  also could  not award  a contract simpliciter for tapping on the basis of royalty with or without load because as  a   matter  of   policy,  with  a  view  to  encouraging industrialisation, the  State  did  not  want  resin  to  go outside its  territories but  wanted it  to be used only for the purpose  of feeding  industries set  up within the State and even if a condition could legitimately be imposed on the contractor that  he should  sell  the  resin  extracted  and retained by  him only  to industries  within the  State,  it would be  difficult to  ensure observance  of such condition and moreover the object of the State to make resin available to the  local industries  at a  reasonable  price  might  be frustrated,  because  the  contractor  taking  advantage  of

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scarcity in  supply of  resin might,  and in all probability would,  try   to  extract  a  much  higher  price  from  the industries needing  resin.  It  was  thus  found  to  be  an impracticable proposition to tap these blazes either on wage contract basis  or on  the basis  of royalty with or without load. [1365 A-F]      (ii) The  impugned Order was unquestionable and without doubt  in  the  interest  of  the  State  and  even  with  a microscopic examination  there in  nothing in it which could possibly incur  the reproach of being condemned as arbitrary or irrational. [1366 B-C]      (iii) It  is true that no advertisements were issued by the State  inviting tenders for award of tapping contract in respect of  these blazes  or stating  that tapping  contract would be  given to  any party  who is  prepared to  put up a factory for  manufacture of  resin, turpentine oil and other derivatives within  the State,  but it  was  not  a  tapping contract simpliciter which was being given by the State. The tapping contract was being given by way of allocation of raw material for  feeding the  factory to  be set  up by the 2nd respondent [1366 A-C]      The predominent  purpose  of  the  transaction  was  to ensure setting up of a factory by the 2nd respondent as part of the  process of  industrialisation of the State and since the 2nd  respondent wanted assurance of a definite supply of resin as  a condition  of putting  up the factory, the State awarded the  tapping contract to the 2nd respondent for that purpose.  If   the  State   were  giving   tapping  contract simpliciter there  can be no doubt that the State would have to auction or invite tenders for securing the highest price, subject,  of   course,  to  any  other  relevant  overriding considerations of  public weal  or interest,  but in  a case like this  where the  State is  allocating resources such as water,  power,   raw  material  etc.,  for  the  purpose  of encouraging setting  up of  industries within the State, the State is  not bound to advertise and tell the people that it wants a  particular industry  to be  set up within the State and invite  those interested  to come  up with proposals for the purpose.  The State may choose to do so if it thinks fit and in  a given  situation, it  may  even  turn  out  to  be advantageous for  the State  to do  so, but  if any  private party comes  before the  State  and  offers  to  set  up  an industry, the  State would  not be  committing breach of any constitutional or  legal obligation  if it  negotiates which such  party  and  agrees  to  provide  resources  and  other facilities for  the purpose  of setting up the industry. The State is not obliged to tell such party; "Please wait I will first  advertise,   see  whether   any  other   offers   are forthcoming and  then after  considering all  offers, decide whether I  should let  you set up the industry". It would be most unrealistic to insist on such a procedure, particularly in an  area like  Jammu and  Kashmir  which  on  account  of historical,  political   and  other   reasons,  is  not  yet industrially developed  and where  entrepreneurs have  to be offered attractive terms in order to persuade them to set up an 1346 industry. The State must be free in such a case to negotiate with a  private entrepreneur  with a view to inducing him to set up  an industry within the State and if the State enters into  a   contract  with  such  entrepreneur  for  providing resources and  other facilities  for setting up an industry, the contract  cannot be  assailed as  invalid so long as the State  has   acted  bona  fide,  reasonably  and  in  public interest. If the terms and conditions of the contract or the

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surrounding circumstances show that the State has acted mala fide or  out of  improper or  corrupt motive  or in order to promote the private interests of some one at the cost of the State, the  Court will undoubtedly interfere and strike down State action  as  arbitrary,  unreasonable  or  contrary  to public interest.  But so  long as  the State  action is bona fide and  reasonable, the Court will not interfere merely on the ground that no advertisement was given or publicity made or tenders invited. [1366 C-H, 1367 A-D]

JUDGMENT:      ORIGINAL JURISDICTION  : Writ Petitions Nos. 481-482 of 1979.      (Under Article 32 of the Constitution of India).      K. N. Bhatt for the Petitioner.      Altaf Ahmed for Respondent No. 1.      E. C. Agarwal for Respondent No. 2.      The Judgment of the Court was delivered by,      BHAGWATI, J.-These  two writ petitions under Art. 32 of the Constitution  raise questions  of some importance in the field  of   constitutional  law,  but  they  are  not  exact questions which  can be  divorced from the facts giving rise to them  and in  order to resolve them satisfactorily, it is necessary to  state the  facts in  some detail.  Though  the petitioners in  the two  writ petitions  are different,  the respondents are  the same and the same Order of the State of Jammu and  Kashmir is challenged in both the writ petitions. Hence whatever  we say in regard to the first writ petition, applies equally in regard to the second.      The dispute  in these  writ petitions  relates  to  the validity of  an Order  dated 27th April, 1979, passed by the Government of  Jammu  and  Kashmir,  allotting  to  the  2nd respondents 10  to 12 lacs blazes annually for extraction of resin from  the inaccessible  chir forests  in Poonch, Reasi and Ramban  Divisions of  the State for a period of 10 years on the  terms and  conditions set  out  in  the  Order.  The validity of the Order has been challenged on various grounds which we shall presently set out, but in order to understand and appreciate  these grounds,  it  is  necessary  to  state briefly the  circumstances in  which the  Order came  to  be passed by  the Government  of Jammu  and Kashmir. There is a commodity called  Oleo-resin, which we shall hereafter refer shortly as  resin, which  is a forest produce extracted from certain species  of trees popularly known as chir trees. The process of  extraction is  called ‘tapping’  and it involves several steps. Chir trees are annually given one or two 1347 wounds which are technically called blazes and cups and lips are fixed  at the  bottom of  each blazes  for collection of resin. The  actual collection of resin starts from 1st April and ends  on 31st  October every  year. The  maximum flow of resin from  blazes is  during the months of May and June and in the subsequent months of the working season, namely, July to October,  the flow  gradually decreases  due to the rainy season followed by fall in temperature. The tapping of resin is a  continuous process  and the initial blazing have to be followed by  freshening given  every week. If the blazes are not freshened regularly, the resin ducts get blocked and the blazes become  dry and once a blaze becomes dry, the flow of resin stops  completely. The  resin that is collected in the cups is  transferred to  tin containers  every  week-end  or earlier  if  required,  and  the  tin  containers  are  then transported to  the transit  depots for being carried to the

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destination. This  process of tapping requires employment of skilled  labour   and  involves  a  considerable  amount  of expenditure. The  State of Jammu and Kashmir started tapping operations in  respect of its chir trees since about 1973 by giving contracts  to  private  parties  for  extraction  and collection of resin. The contracts were of three types :           (1)   One was  contract on  wage  basis,  commonly                known as  wage contract,  which was  given by                auctioning the  blazes to  the person who was                prepared to  undertake the work of extraction                and collection  of resin  at the lowest rates                of labour  charges and  in such contract, the                entire resin  extracted and  collected by the                contractor would  belong to the State and the                contractor would be entitled only to the wage                or  labour   charges   for   extraction   and                collection of resin.           (2)   The second type of contract was on the basis                of  royalty   without  load  and  under  this                contract, which  was again  given by  auction                stipulating for payment of royalty per blaze,                the entire  resin extracted  and collected by                the contractor  would belong  to him  and  he                would be  free to  sell or  process it  as he                liked.           (3)  The third type of contract given by the State                was on  the basis  of royalty  with load  and                under this  contract, which was also given by                auction, the  royalty was  payable per  blaze                and out  of the resin extracted and collected                by the  contractor, a certain part would have                to be  surrendered to  the  State  while  the                balance would remain with the contractor. Every year  the State  auctioned the blazes in the different forests within  its territory  and about  40 per cent of the forests were given on royalty 1348 basis, some  with load  and some  without  load,  while  the balance of  about 60  per cent  were given  on wage contract basis.      The resin,  which was  thus obtained  by the  State  by giving out blazes on contract whether on royalty-cum-load or on wage  basis, was auctioned by the State from time to time and  manufacturers  having  factories  for  manufactures  of resin, turpentine  and other derivatives purchased it at the auctions. It  is common ground that most of these purchasers were manufacturers  having  their  factories  in  Hoshiarpur district of  Punjab and  at the material time, they depended for their  requirement of  raw-material solely  on the resin available at  the auction  held by the State since supply of resin had  ceased to  be available  from Uttar  Pradesh  and Himachal Pradesh  on account  of the  policy adopted  by the Governments in  these territories.  The State,  however,  in furtherance   of   its   policy   to   bring   about   rapid industrialisation,  decided   that  from  the  year  1979-80 onwards, the  resin extracted from its forests should not be allowed to  be exported outside the territories of the State and should  be utilised only by industries set up within the State. The  State in  fact entered into contracts with three manufacturers, namely,  Prabhat  Turpentine  and  Synthetics Pvt. Ltd., Dujodwala Resin and Turpentine Pvt. Ltd. and Pine Chemicals Ltd.  under which these three manufacturers agreed to put-up  factories in  the State for manufacture of resin, turpentine and  other derivatives  and the  State agreed  to make available  to them  respectively an  assured supply  of

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4,000, 3500  and 8000  metric tonnes  of resin per year. The validity of these contracts was challenged before us in writ petitions Nos.  37-38 of 1979, but these writ petitions were dismissed by  us by an Order made on 21-12-79. The State had also commitments to supply resin to its own concern, namely, J &  K Industries  Ltd., which  was running  a  factory  for manufacture of resin and turpentine as also to various small scale units  which were set-up in the State. It appears that the total  requirements of  the State  for  the  purpose  of meeting these commitments was in the neighbourhood of 24,000 metric tonnes of resin. Now in view of the fact that quite a large number  of forests  were being  given out by the State for  tapping  on  royalty  contract  basis,  sometimes  even without load,  the aggregate  quantity of  resin  which  was being collected  by the  state was  very much  short of  the total requirement  of  24,000  metric  tonnes  and  it  was, therefore, felt  to be absolutely necessary for the State to increase its  procurement of  resin so as to be able to meet its commitments.  With this  end in  view a  meeting of  the Chief Conservator  of forests and other forest officials was held on  9th December,  1978 for  the purpose  of discussing ways and  means for  achieving a higher target of production of resin.  It was decided at this meeting that the increased target  of   production  could   be  achieved  only  through replacement of royalty contracts by wage con- 1349 tracts wherever possible and hence in future blaze should be auctioned for tapping only on wage contract basis.      Now there  were certain  forests in  Reasi  and  Ramban Divisions of  the State  which were  difficult of  access on account of  their distance  from the  roads and so were some forests in  the Poonch  Division near  the  line  of  actual control. So  far as  the forests  in the Rea i Division were concerned, there  were 6,08,115  blazes which were attempted to be  given for  tapping in  the year  1976-77  on  royalty contract basis  without load  but out  of them only 1,28,856 blazes were  taken by  one Prem Kumar Sood and that too on a royalty of  only Rs.  2.55 per  blaze, as against royalty of about Rs.  6/- per  blaze obtained  by the  State  in  other inaccessible areas  by giving contract on royalty basis with load of  3 Kg.  per blaze.  Moreover, these  1,28,856 blazes were situate  in the  lower reaches  of inaccessible forests and  no  contractors  could  be  found  for  taking  tapping contracts, even  on the  basis of  royalty without load, for blazes in  the higher regions of the inaccessible areas. The same 1,28,856  blazes were  again put-up for auction for the year 1977-78, but no bidders came forward to take a contract even on  royalty without load basis. Then for the year 1978- 79, out  of these  1,28,856 blazes,  72,951 blazes were once again put-up  for auction  and though  these were situate in less inaccessible  areas than  the rest  of the  blazes, the response was  most discouraging  and no  one came forward to make a  bid for  taking the  contract even  on royalty basis without load. The result was that practically no tapping was done from  these 6,08,115 blazes in the forests of the Reasi Division upto  1979-80. There  were  also  some  new  blazes marked in  the forests  of the  Reasi Division  for the year 1979-80 and out of them, 4,20,340 blazes were in areas which were inaccessible on account of their being at a distance of 8 to  40 k.ms.  from the  roadside.  Even  out  of  the  old 6,08,115  blazes  there  were  3,10,674  blazes  which  were situate in  the same  category of inaccessible areas. So far as the  forests in  the Ramban Division are concerned, there were 1,24,400 blazes which were equally inaccessible "due to long lead  upto coupe boundaries and transit depots" and the

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position in  regard to  3,30,300  blazes  which  were  under tapping in  Poonch Division, was also similar to that of the inaccessible areas  in Reasi  and Ramban  Divisions with the additional handicap of their being situate along the line of actual control.  There were  thus  in  all  about  11,85,414 blazes in  the Reasi, Ramban and Poonch Divisions which were in inaccessible  areas and having regard to the high cost of extraction and  collection of  resin as also the scarcity of trained labour  in those  areas, it was not possible to give out these blazes by auction on wage contract basis. The past experience showed  that even on the basis of royalty without load, contractors were not forth-coming for taking contracts in respect of 1350 blazes in  the inaccessible  areas of the Reasi Division and giving out  of the aforesaid blazes in the Reasi, Ramban and Poonch Divisions  on wage  contract  basis  was,  therefore, almost an  impossible proposition.  The Chief Conservator of Forests and  other forest  officers accordingly  decided  at their meeting  of December  9, 1978  that these blazes could not be  tapped through wage contract because "apart from the total non-availability  of local labour in these areas, cost of production  due to  long lead  upto coupe  boundaries and transit depots  would be  prohibitive" and  all  such  areas should, therefore, be excluded from tapping wage contracts.      These decisions  taken in  the meeting of 9th December, 1978 were confirmed at a subsequent meeting which took place between the Forest Minister, the Forest Secretary, the Chief Conservator of  Forests and  other forest  officers on  26th December, 1978.  It was further decided in this meeting that "the departmental  tapping through  wage contracts should be confined to  accessible chir  forests" only  and so  far  as 11,85,414 blazes  in the  inaccessible areas  of the  Reasi, Ramban and  Poonch Divisions  were concerned,  the consensus was that  "these blazes  should be  allotted to some private party  as  procurement  of  resin  from  them  through  wage contracts was  not feasible, being difficult and costly" and "the financial  status and experience in extraction of resin from forests  and its  distillation in the factory should be decisive factors"  in regard  to such  allotment. Now  it is necessary to  point out  that, prior  to the  date  of  this meeting, the 2nd respondents had addressed a letter dt. 15th April 1978 to the Minister for Industries, offering to setup a factory for manufacture of resin, turpentine oil and other derivatives in the State "with the latest know-how under the supervision of  the State  Government" and seeking allotment of 10,000  metric tonnes of resin annually for that purpose. The 2nd  respondents pointed  out in  their letter that they possessed vast  experience in  processing of  resin and  re- processing of  resin and turpentine oil and manufacture of a wide range  of derivatives,  since they  had 2 factories for manufacture of  resin and  turpentine oil, one in Hoshiarpur and the  other in  Delhi and  moreover, they  had also  been working as  resin extraction contractors since 1974 and were also bulk  purchasers of  resin at  the auctions held by the State. It  was also  stated by the 2nd respondents that they had reliably  learnt that  Camphor and  Allied Products Ltd. and Prabhat  General Agencies  were being  considered by the State for  allotment of resin to feed the units to be set-up by  them   within  the   State  and   they  expressed  their willingness  to  take  the  allotment  of  resin  for  their proposed factory  on the  same terms  and  conditions.  This offer of  the 2nd  respondents was  forwarded to  the Forest Minister, but  despite the  policy of the State to encourage setting-up of resin-based industrial units in the State, it

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1351 was not  found possible,  having regard  to the  commitments already made by the State, to make any allotment of resin to the 2nd  respondents. A  proposal was,  therefore, mooted by the forest  officials that  about 10  to 12  lacs blazes  in inaccessible areas  could be  made available  for tapping to the 2nd respondents on certain terms and conditions, so that out of  the quantity  tapped, a  certain  portion  could  be retained by  the 2nd  respondents for  being utilised in the factory to  be set-up  by them  within  the  State  and  the balance could  be surrendered  to the  Government.  The  2nd respondents were agreeable to this proposal and in fact they put it  forward as an alternative proposal for consideration by the  State, but  no decision  was taken  on it  until the meeting of  26th  December,  1978.  When,  as  a  result  of discussions at  this meeting, the consensus was reached that 11,85,414 blazes  in the inaccessible areas of Reasi, Ramban and Poonch  Divisions should  be allotted  to  some  private party for  ensuring supply  of resin  to be  utilised in the factory to  be set-up  by such  party within  the State, the proposal of the 2nd respondents was considered alongwith the applications of some others including the petitioners in the light of  the factors  agreed upon at the meeting and having regard to  the vast  experience of  the 2nd  respondents  in extraction and  processing of  resin and in view of the fact that they  were large  purchasers of  resin at  the auctions held by  the State,  it was decided that the case of the 2nd respondents  should  be  processed  for  submission  to  the Government.      It appears  that J  & K  Resin Contractors  Association (hereinafter referred  to as  the association)  came to know sometime in  October, 1978  that  the  2nd  respondents  had approached the  State Government and there was a proposal to allot to  them "certain resin coupes on royalty system of 10 years" on  the basis  that they  would install a factory for manufacture of  resin and  turpentine at  Jammu with sizable investment. The  association thereupon addressed a letter to the Chief  Minister in  October,  1978  complaining  against giving  of   contract  to   an  outside   party  by  private negotiations and  pleading that contract, whether on royalty basis or otherwise, should be given only by open auction. It is significant  to note  that  no  offer  was  made  by  the association  in   this  letter   to  set  up  a  resin-based industrial unit  in the  State and  the only  plea was  that tapping contract should not be given by private negotiations to a  non-state party,  but should  be given  only  by  open auction. Since the decision was taken at the meetings of 9th December, 1976  and 26th  December, 1978  that blazes in the inaccessible areas Reasi, Ramban and Poonch Divisions should not be given on wage contract basis, they were excluded from the  auctions   held  by  the  State  and  the  association, therefore, addressed a letter dated 22nd January 1979 to the Chief Conservator of Forests 1352 requesting him to include these blazes in the auctions. This was followed  by another  letter dated  5th  February,  1979 addressed by  the association  to the  Forest Minister where the request  for inclusion  of these  blazes in the auctions was  repeated  by  the  association.  The  association  also pleaded with  the Forest  Minister that  instead of adopting the wage  contract method  for giving out blazes for tapping contracts, "The  system of  royalty contract  with increased load" should be continued in the forests divisions including Reasi, Ramban  and Poonch.  The same request was repeated by the association  in a letter dated 8th March, 1979 addressed

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to the Chief Minister. There was obviously no reply to these communications  since  it  had  already  been  decided  that tapping of  blazes in  the accessible chir forests should be done only through wage contracts and 11,85,414 blazes in the inaccessible areas  of Reasi  Ramban  and  Poonch  Divisions should be allotted to some private party, which was prepared to set-up a factory for manufacture of resin, turpentine and other derivatives in the State.      The 2nd  respondents presumably, on coming to know that their alternative  proposal for  allotment of  10 to 12 lacs blazes in  inaccessible areas  was being  processed  by  the Government, addressed  a letter dated 22nd February, 1979 to the Secretary to the Forest Department formulating the broad terms of the proposal and requesting the State Government to consider the  proposal favourably  and come  to  a  decision immediately, since  the tapping  season was  commencing from 1st April,  1979. The  association by  its letter dated 18th March,  1979  addressed  to  the  Chief  Minister  protested against the blazes in the Reasi, Ramban and Poonch Divisions being given  to  the  2nd  respondents  by  negotiations  on royalty basis  for 10 years and urged that doing so would be contrary to the interests of the local contractors and local labour and  "will also  be a  source of  huge  loss  to  the Government  exchequer"   since  the   price  of   resin  was increasing day  by day.  Once again  a plea  was made by the association that  these  blazes  should  be  given  out  for tapping contract  by public  auction. The  petitioners  also complained to  the Chief  Minister by  a letter addressed in March,  1979   against  giving   of  contract   to  the  2nd respondents who  were an  outside party  and offered to take "all the  untapped forests  in the  State on  2 to  3 years’ lease on  rotational basis"  stating that  they would pay 50 paise per  blaze more  than that  offered  under  any  other proposal and  that out  of the  quantity tapped by them they would retain  3,000 metric  tonnes which  they would utilise for  manufacturing   resin,   turpentine   oil   and   other derivatives in  a new modern factory to be set-up by them in some backward  area of  the State.  The State did not accept this offer made by the petitioners and 1353 decided to  go ahead with giving tapping contract in respect of these blazes to the 2nd respondents.      The State  accordingly,  passed  an  order  dated  27th April, 1979  sanctioning allotment  of 11.85  lacs blazes in the inaccessible areas of Reasi, Ramban and Poonch Divisions to the 2nd respondents for a period of 10 years on the terms and conditions  set out  in the  order. The  2nd respondents were required  by clause  II(iii) of  the order to surrender 25% of  the annual  resin collected  by them,  subject to  a minimum of  1500 metric  tones per  annum, to  the State for feeding the  new  resin  distillation  plant  which  J  &  K Industries Ltd.  proposed to  set up  Rajouri/Sunderbani and they could retain the balance of the extracted resin subject to a maximum of 3500 metric tones per annum. Clauses II (iv) and V  of the  order provided that the 2nd respondents shall set-up a  resin distillation plant in the small scale sector for processing  of upto  3500 metric  tones of resin and the extracted resin  which is  allowed to remain with them under the order  shall be  utilised only in the plant to be set-up by them  and shall  not be removed outside the State. Clause II(v) of  the order  stipulated  that  the  2nd  respondents shall:      "(a) be paid  the same  wages for  part  of  the  resin           extracted and delivered to the department as would           be sanctioned  by the  Forest Department from year

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         to year  for other  departmental resin  extruction           contracts  for   the  adjoining   blocks  in   the           respective locality;      (b)    get  proportionate  rebate  in  royalty  on  the           quantity thus  surrendered (i.e.  no royalty shall           be charged for such quantity); and      (c)   deliver such resin at the JKL factory at Rajouri/           Sunderbani for  which no transport charges will be           allowed. Clause III  provided that the price of resin retained by the 2nd respondents  shall be Rs. 350/- per quintal and it shall be subject  to review  after  three  years  and  every  year thereafter and so far as the royalty is concerned, Clause IV stated that it shall be worked out by a committee, the basis of calculation  being  the  cost  of  resin  extraction  and collection in  adjoining areas  given out  on wage-contracts from year  to year  and the  sale price of resin as fixed at Rs. 350/-  per quintal,  for a  period of  three years after which it shall be reviewed annually." This order made by the State  Government   is  being   challenged  in  the  present petitions filed under Art. 32 of the Constitution. 1354      There were  in the  main three  grounds  on  which  the validity  of  the  order  was  assailed  on  behalf  of  the petitioners. They were as follows:      (A)  That the  Order is  arbitrary, malafide and not in           public interest,  inasmuch as  a huge  benefit has           been conferred  on the 2nd respondents at the cost           of the State.      (B)   The order  creates monopoly  in favour of the 2nd           respondents who or a private party and constitutes           unreasonable  restriction  on  the  right  of  the           petitioners to  carry on tapping contract business           under Art. 19 (1) (g) of the Constitution.      (C)  The State  has acted  arbitrarily in selecting the           2nd respondents  for  awarding  tapping  contract,           without affording  any opportunity  to  others  to           compete  for  obtaining  such  contract  and  this           action of  the State  is not based on any rational           or relevant  principle and is therefore, violative           of Art. 14 of the Constitution as also of the rule           of administrative  law  which  inhibits  arbitrary           action by the State. We shall examine these grounds in the order in which we have set them  out. but,  before we do so, we may preface what we have to  say by  making a  few preliminary  observations ill regard to the law on the subject.      It was  pointed out  by this  Court in  "Ramana Dayaram Shetty v. The International Airport Authority of India  ors. that with  the growth  of the  welfare state,  new forms  of property in  the shape of Government largess are developing, since the  Government is  increasingly assuming  the role of regulator and dispenser of social services and provider of a large  number   of  benefits   including  jobs,   contracts, licences, quotas,  mineral rights  etc. There  is increasing expansion  of   the  magnitude  and  range  of  Governmental functions, as  we move  closer to the welfare state, and the result is that more and more of our wealth consists of these new forms  of property. Some of these forms of wealth may be in the nature of legal rights but the large majority of them are in  the nature  of privileges.  The law  has however not been slow  to recognise  the importance  of this new kind of wealth and the need to protect individual interest in it and with that  end in  view,  it  has  developed  new  forms  of protection. Some  interests in  Government largess, formerly

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regarded as privileges, have been recognised 1355 as rights, while others have been given legal protection not only by forging procedural safeguards but also by confining, structuring and checking Government discretion in the matter of grant  of such  largess. The discretion of the government has been  held to  be not  unlimited in  that the Government cannot give  largess in  its arbitrary  discretion or as its sweet will  or on  such terms  as it chooses in its absolute discretion. There  are two  limitations imposed by law which structure 1  and control the discretion of the Government in this behalf.  The first  is in  regard to the terms on which largess may  be granted  and the  other. In  regard  to  the persons who may be recipients of such largess.      So far  as the  first limitation is concerned, it flows directly from  the thesis that, unlike a private individual, the State  cannot act  as it pleases in the matter of giving largess. Though  ordinarily a  private individual  would  be guided by economic considerations of self-gain in any action taken by  him, it is always open to him under the law to act contrary to  his  self-interest  or  to  oblige  another  in entering into  a contract or. dealing with his property. But the Government  is not  free lo  act as it likes in granting largess such  as awarding  a contract  or selling or leasing out its  property. Whatever  be its activity, the Government is still  the  Government  and  is,  subject  to  restraints inherent in  its  position  in  a  democratic  society.  The constitutional power  conferred on  the Government cannot be exercised by  it  arbitrarily  or  capriciously  or  in  and unprincipled manner;  it has  to be exercised for the public good. Every  activity of the Government has a public element in it  and it  must therefore,  be informed  with reason and guided  by  public  interest.  Every  action  taken  by  the Government must be in public interest; the Government cannot act arbitrarily  and without  reason and  if  it  does,  its action would  be liable to be invalidated. If the Government awards a  contract or leases out or otherwise deals with its property or  grants any other largess, it would be Liable to be  tested   for  its   validity  on   the  touch-stone   of reasonableness and  public  interest  and  if  it  fails  to satisfy  either  best,  it  would  be  unconstitutional  and invalid.      Now what  is the test of reasonableness which has to be applied in  order to  determine the validity of governmental action. It  is undoubtedly true, as pointed out by Patanjali Shastri, J.  in State of Madras v. V.G. Rau, that in forming his own  conception  of  what  is  reasonable,  in  all  the circumstances of  a given  case, it  is inevitable  that the social philosophy  and the  scale of  values  of  the  judge participating in the decision, would play an important part, but even  so, me  test of  reasonableness is  not  a  wholly subjective test and its contours are fairly indicated by the Constitution. The concept of reason- 1356 ableness in  fact pervades the entire constitutional scheme. The interaction  of Arts.  14, 19  and 21  analysed by  this Court  in   Maneka  Gandhi   v.  Union   of  India,  clearly demonstrated that  the requirement  of  reasonableness  runs like  a   golden  thread   through  the   entire  fabric  of fundamental rights  and, as  several decisions of this Court show, this  concept of  reasonableness  finds  its  positive manifestation and  expression in  the lofty  ideal of social and  economic   justice  which  inspires  and  animates  the Directive Principles. It has been laid down by this Court in E.P. Royappa  v. State  of Tamil  Nadu, and  Maneka Gandhi’s

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case (supra)  that Art. 14 strikes at arbitrariness in State action  and  since  the,  principle  of  reasonableness  and rationality, which  is legally as well as philosophically an essential  element  of  equality  or  non-arbitrariness,  is protected  by  this  article,  it  must  characterise  every governmental action,  whether it  be under  the authority of law or in exercise of executive power without making of law. So also  the concept  of  reasonableness  runs  through  the totality of  Art. 19  and requires  that restrictions on the freedoms of the citizen, in order to be permissible, must at the best  be reasonable.  Similarly  Art.  21  in  the  full plenitude of  its activist magnitude as discovered by Maneka Gandhi’s case,  insists that no one shall be deprived of his life or personal liberty except in accordance with procedure established by  law and  such procedure  must be reasonable, fair and  just. The Directive Principles concretise and give shape to the concept of reasonableness envisaged in Articles 14, 19 and 21 and other articles enumerating the fundamental rights. By defining the national aims and the constitutional goals,   they   setforth   the   standards   or   norms   of reasonableness which  must guide  and  animate  governmental action. Any  action taken  by the  Government with a view to giving effect to any one or more of the Directive Principles would ordinarily,  subject to  any constitutional  or  legal inhibitions or other over-riding considerations, qualify for being regarded  as reasonable,  while  an  action  which  is inconsistent with  or runs  counter to a Directive Principle would incur the reproach of being unreasonable.      So also  the concept  of public interest must as far as possible  receive   its  orientation   from  the   Directive Principles.  What   according  to   the   founding   fathers constitutes the  plainest requirement  of public interest is set out  in the  Directive Principles  and they  embody  par excellence the  constitutional concept  of public  interest. If, therefore,  any governmental  action  is  calculated  to implement or give effect to a 1357 Directive Principle,  it would  ordinarily, subject  to  any other overriding  considerations, be  informed  with  public interest.      Where any governmental action fails to satisfy the test of reasonableness and public interest discussed above and is found to  be wanting  in the  quality of  reasonableness  or lacking in  the element  of public  interest,  it  would  be liable to  be struck  down as  invalid. It  must follow as a necessary  corollary   from  this   proposition   that   the Government cannot  act in  a manner  which would  benefit  a private party at the cost of the State; such an action would be both  unreasonable and  contrary to  public interest. The Government, therefore,  cannot, for example, give a contract or sell  or lease  out its property for a consideration less than the  highest that  can be  obtained for  it, unless  of course  there  are  other  considerations  which  render  it reasonable  and   in  public   interest  to   do  so.   Such considerations may  be  that  some  Directive  Principle  is sought to be advanced or implemented or that the contract or the property is given not with a view to earning revenue but for the  purpose of  carrying out  a welfare  scheme for the benefit of a particular group or section of people deserving it or that the person who has offered a higher consideration is not  otherwise fit  to  be  given  the  contract  or  the property. We  have referred  to these considerations to only illustratively, for  there may  be an  infinite  variety  of considerations which  may have  to be  taken into account by the Government  in formulating  its policies  and it is on a

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total  evaluation   of  various  considerations  which  have weighed with  the Government  in taking a particular action, that the  Court would  have to  decide whether the action of the Government is reasonable and in public interest. But one basic principle  which must  guide the  Court in arriving at its determination on this question is that there is always a presumption that  the Governmental  action is reasonable and in public  interest and  it is for the party challenging its validity to  show that it is wanting in reasonableness or is not informed  with public  interest. This  burden is a heavy one and  it has  to be discharged to the satisfaction of the Court by  proper and  adequate material.  The  Court  cannot lightly assume  that the  action taken  by the Government is unreasonable or  without public interest because, as we said above, there  are a  large number  of policy  considerations which must  necessarily weigh  with the Government in taking action  and  therefore  the  Court  would  not  strike  Down governmental action  as invalid on this ground, unless it is clearly satisfied  that the action is unreasonable or not in public interest.  But where  it is so satisfied, it would be the plainest  duty of  the Court  under the  Constitution to invalidate the  governmental action. This is one of the most important functions  of the  Court and  also one of the most essential for preservation of the rule of law. 1358 It is  imperative in a democracy governed by the rule of law that governmental  action must  be kept within the limits of the law  if there  is any  transgression the  Court must  be ready to condemn it. It is a matter of historical experience that there  is a tendency in every government to assume more and more  powers and  since it is not an uncommon phenomenon in countries  that the legislative check is getting diluted, it is  left  to  the  Court  as  the  only  other  reviewing authority under the Constitution to be increasingly vigilant to ensure  observance with the rule of law and in this task, the court  must not  flinch or falter. It may be pointed out that  this   ground  of   invalidity,   namely,   that   the governmental  action  is  unreasonable  or  lacking  in  the quality of  public interest, is different from that of mala- fides though  it may,  in a  given case, furnish evidence of mala-fides.      The  second   limitation  on   the  discretion  of  the Government in  grant of  largess is in regard to the persons to whom  such largess may be granted. It is now well settled as a  result of  the decision  of this  Court in  Ramana  D. Shetty v.  International Airport  Authority of  India & Ors. (supra) that  the Government  is not  free like  an ordinary individual, in  selecting the recipients for its largess and it cannot  choose to  deal with any person it pleases in its absolute and  unfettered discretion.  The law  is  now  well established that  the Government  need not deal with anyone. but  if   it  does   so,  it   must  do  so  fairly  without discrimination  and  without  unfair  procedure.  Where  the Government is  dealing with  the public,  whether by  way of giving jobs  or entering  into contracts  or granting  other forms of  largess. the  Government cannot act arbitrarily at its, sweet  will and,  like a  private individual, deal with any person  it pleases, but its action must be in conformity with  some   standard  or   norm  which  is  not  arbitrary, irrational or  irrelevant. The  governmental action must not be arbitrary  or capricious,  but  must  be  based  on  some principle which meets the test of reason and relevance. This rule was enunciated by the Court as a rule of administrative law and  it was  also validated by the Court as an emanation flowing directly  from the  doctrine of equality embodied in

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Art. 14.  The Court  referred to  the activist  magnitude of Art. 14  as evolved  in E. P. Royappa v. State of Tamil Nadu (supra) and  Maneka Gandhi’s  case (supra) and observed that it must  follow "as a necessary corollary from the principle of equality  enshrined in  Art. 14  that though the State is entitled to  refuse to  enter into relationship with anyone, yet if  it does  so, it cannot arbitrarily choose any person it  likes   for  entering   into   such   relationship   and discriminate between persons similarly circumstanced, but it must act in conformity with some standard or principle which meets the  test of reasonableness and non-discrimination and any departure from such standard or 1359 principle would  be invalid  unless it  can be  supported or justified on  some rational  and non-discriminatory ground." This decision has reaffirmed the principle of reasonableness and non-arbitrariness  in governmental  action which lies at the core of our entire constitutional scheme and structure.      It is  in the  light of  these two  limitations on  the discretion of  the Government  in the  matter  of  grant  of largess that  we must  proceed to  examine  the  grounds  of attack urged on behalf of the petitioners. Re Ground A:      The argument  under this head of challenge was that the State had  under the impugned order granted tapping contract to  the   2nd  respondents   on  terms   which  were  highly disadvantageous to  the State and involved considerable loss of revenue  to the  Government  exchequer.  The  petitioners contended that  the price  of resin  realised at the auction held in  December 1978  was Rs. 484/- per quintal; it was Rs 520/- per quintal at the auction held in January 1979 and it rose to  Rs. 720/-  per quintal at the auction held in April 1979 but  despite this  phenomenally high  price which could have been obtained in auction, the State chose to sell resin to the  2nd respondents  at a  low price  of Rs.  350/-  per quintal for  a period  of 3  years under the impugned order, conferring huge  benefits on the 2nd respondents at the cost of the  Government exchequer.  The impugned  order therefore said the petitioners, was wholly arbitrary, unreasonable and contrary to public interest and was liable to be struck down as invalid.  This argument  plausible though  it may seem at first blush, is in our opinion not well founded and a closer look at  the facts  will clearly  show  that  it  cannot  be sustained.      We  may  first  clear  the  ground  by  stating  a  few undisputed facts.  The practice  which was being followed by the State  until the  year 1979-80 was to give out blazes in the chir forests either on wage contract basis or on royalty basis with or without load. The result was that about 50 per cent of  the resin  extracted used  to be  taken away by the contractors and the balance of 50 per cent remained with the State which  the State  partly made  available  to  its  own factories and small scale units in the State and partly sold by auction  and out  of the  quantity auctioned the bulk was purchased by  manufacturers having  factories in Hoshiarpur. It appears’  that from about 1975 onwards the State embarked upon a  policy of  industrialisation and  in furtherance  of this policy, it decided some time in the later half of 1978, that from the year 1979-80, no resin should be allowed to he exported outside the State territories and that it should be made available  for being utilised only in industries set up within the State. But this measure by itself was not enough, because so long as 1360 contracts for  extracting resin  were given on royalty basis

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with or  without load, a sizable quantity of resin extracted would go  into the  hands of  the contractors  and would not become  available   to  the   State   for   fulfilling   its commitments. The  State, therefore,  decided as  a matter of policy  to  replace  royalty  contracts  by  wage  contracts wherever possible  and to auction blazes for tapping only on wage contracts  basis. But, as pointed out above, there were certain forests  in Reasi, Ramban and Poonch Divisions which were difficult  of access  on account of their distance from the roads  and some  of the  forests in Poonch Division were near the  line of  actual control  and consequently  it  was found  impracticable  to  give  them  for  tapping  on  wage contract basis.  It was  difficult to  give them for tapping even on  the basis  of royalty  without load and the maximum that could  be obtained  for a  part of  the blazes  in  the Reasi, Division  in the year 1976-77 was royalty of Rs. 2.55 per blaze  without load.  It was,  therefore, decided by the State to exclude about 11,85,414 blazes in the Reasi, Ramban and Poonch  Divisions from tapping through wage contract and they were  kept out  of the  auctions held by the State. The Association undoubtedly  made representations requesting the State to  include these  blazes in  the auctions,  but as is evident from  the letters  dated 5th  February 1979  and 8th March 1979  addressed respectively  to the  Forest Minister. and the  Chief Minister, the emphasis of the Association was that the  system of  working should  be changed  from  wage’ contract to  royalty contract"  and that these blazes should be put  to auction on royalty basis. The State obviously, in view of its policy, could not accede to this request made on behalf of  the Association  and since, having regard to past experience. it  was felt  that it  would be  futile to offer these blazes  for tapping  through wage  contract, the State was not  unjustified in  not including them in the auctions. Now the  second respondents  offered to set up a factory for manufacture of  resin, turpentine  oil and other derivatives in the  State and  requested to  State to  make allotment of resin annually  for this  purpose  on  the  same  terms  and conditions on  which allotment  was proposed  to be  made to Camphor  and   Allied  Products  Ltd.  and  Prabhat  General Agencies.  The   State,   in   view   of   its   policy   of Industrialisation, was  interested in  the setting up of the factory by  the second  respondents, particularly  since the second respondents  had two  factories  for  manufacture  of resin,  turpentine   oil  and  other  derivatives  and  they possessed larger  experience  in  processing  of  resin  and reprocessing,   of   resin,   turpentine   oil   and   other derivatives. But,  having regard  to the commitments already made by  it, it  was not  possible for the State to make any definite allotment  of resin  to the second respondents. The State, however,  had these  blazes in  the Reasi, Ramban and Poonch Divisions which it was finding impracticable to tap 1361 through wage  contract and  the State, therefore, decided to give them  for tapping  to the second respondents on certain terms and  conditions, so  that the second respondents could if they  were prepared  to tap  these blazes in inaccessible areas, secure  an assured  supply of  3500 metric  tones  of resin for  the purpose  of the  factory to be set up by them within the  State. It  was in  these circumstances  that the impugned order  dated 27th  April 1979  came to be passed by the State.      It is  clear  from  the  back-drop  of  the  facts  and circumstances in  which the  impugned order  came to be made and terms  and conditions set out in the impugned Order that it was not a tapping contract simpliciter which was intended

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to  be   given  to   the  second   respondents.  The  second respondents wanted  to be  assured of  regular supply of raw material in  the shape  of resin before they could decide to set up a factory within the State and it was for the purpose of ensuring  supply of  such raw  material that the impugned order  was  made  giving  tapping  contract  to  the  second respondents. It  was really  by way  of  allocation  of  raw material for running the factory that the impugned order was passed. The  terms of  the impugned  order show beyond doubt that the  second respondents were under an obligation to set up a  factory within the State and that 3500 metric tones of resin which  was permitted  to be  retained  by  the  second respondents out  of the resin extracted by them was required to be  utilised in  the factory  to be set up by them and it was provided  that no  part of the Resin extracted should be allowed to be removed outside the State. The whole object of the impugned  order was  to make available 3500 metric tones of resin  to the  second  respondents  for  the  purpose  of running the  factory to  be set up by them. The advantage to the State  was that  a new factory for manufacture of resin, turpentine oil  and other  derivatives would  come up within its territories  offering  more  job  opportunities  to  the people  of   the  State   increasing  their  prosperity  and augmenting the  State revenues  and in  addition  the  State would be  assured of  a definite  supply of  at  least  1500 metric tones  of resin  for  itself  without  any  financial involvement or  risk and  with this  additional quantity  of resin available  to it,  it would  be able to set up another factory creating more employment opportunities and, in fact, as the counter affidavit of Ghulam Rasul, under secretary to the Government  filed on  behalf  of  the  State  shows  the Government lost  no time  in taking steps to set up a public sector resin  distillation plant  in a far flung area of the State, namely,  Sundarbani, in  Rajouri District.  Moreover, the State  would be  able to secure extraction of resin from these inaccessible  areas on the best possible terms instead of allowing  them to  remain unexploited  or given  over  at ridiculously low royalty. We cannot accept the contention of the petitioners that under the im- 1362 pugned order  a huge  benefit was  conferred on  the  second respondents at  the cost  of the State. It is clear from the terms of  the impugned  order that  the  second  respondents would have  to extract  at least  5000 metric tones of resin from the  blazes allotted to them in order to be entitled to retain 3500  metric tones.  The counter  affidavit of Ghulam Rasul on  behalf of the first respondent and Guran Devaya on behalf of  the second  respondents show  that the  estimated cost of  extraction  and  collection  of  resin  from  these inaccessible areas  would be  at  the  least  Rs.  175/  per quintal, though according to Guran Devaya it would be in the neighbourhood of  Rs. 200  per quintal,  but even if we take the cost  at the minimum figure of Rs. 175/ per quintal, the total cost  of extraction  and collection  would come to Rs. 87,50,000/-  and  on  this  investment  of  Rs.  87,50,000/- required to  be made by the second respondents the amount of interest at the prevailing bank rate would work out to about Rs. 13,00,000/-.  Now, as  against this  expenditure of  Rs. 87,50,000/- plus  Rs.  13,00,000/-  the  second  respondents would be entitled to claim from the State in respect of 1500 metric tones of resin to be delivered to it only at the rate sanctioned  by  the  Forest  Department  for  the  adjoining accessible forests  which were being worked on wage contract basis. It  is stated  in the  counter affidavits  of  Ghulam Rasul and  Guran Devaya  and this statement is not seriously

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challenged on  behalf of  the petitioners,  that the cost of extraction  and  collection  as  sanctioned  by  the  Forest Department for  the adjoining  accessible forests  given  on wage contract  basis in  the year  1979-78 was Rs. 114/- per quintal and  the second respondents would, thus, be entitled to claim  from the  State no more than Rs. 114/- per quintal in respect  of 1500  metric tones  to be delivered to it and apart from bearing the difference between the actual cost of extraction and  collection and  the amount received from the State at  the rate  of Rs.  114/- per  quintal in respect of 1500 metric  tones, the second respondents would have to pay the price  of the remaining 3500 metric tones to be retained by them  at the  rate of  Rs. 350/-  per  quintal.  On  this reckoning, the  cost of  3500 metric tones to be retained by the second  respondents would  work out  at  Rs.  474/-  per quintal. The  result would  be that under the impugned order the State  would get  1500 metric tones of resin at the rate of Rs.  114/- per quintal while the second respondents would have to  pay at  the rate  of Rs.  474/- per quintal for the balance of  3500 metric tones retained by them. Obviously, a large benefit  would accrue  to the State under the impugned order. If  the  State  were  to  get  the  blazes  in  these inaccessible areas tapped through wage contract, the minimum cost would  be Rs.  175/- per  quintal, without  taking into account the  additional expenditure  on account of interest, but under the impugned order the State would get 1500 metric tones of resin at a greatly reduced rate of Rs. 114/- per 1363 quintal without  any risk  or hazard.  The State  would also receive for  3500 metric  tones of resin retained by the 2nd respondents price  or royalty  at  the  rate  of  474/-  per quintal which  would be  much higher  than the  rate of  Rs. 260/- per  quintal at which the State was allotting resin to medium scale  industrial units and the rate of Rs. 320/- per quintal at which it was allotting resin to small scale units within the  State. It is difficult to see how on these facts the impugned  order could  be said  to be disadvantageous to the State  or in any way favouring the second respondents at the cost  of the  State. The argument of the petitioners was that at the auctions held in December 1978, January 1979 and April 1979,  the price  of resin realised was as much as Rs. 484/-, Rs.  520/- and Rs. 700/- per quintal respectively and when the  market price  was so  high, it  was  improper  and contrary to public interest on the part of the State to sell resin to the second respondents at the rate of Rs. 320/- per quintal under  the impugned  order. This argument, plausible though it  may seem,  is fallacious because it does not take into account  the policy of the State not to allow export of resin outside  its territories  but to allot it only for use in factories set up within the State. It is obvious that, in view of this policy no resin would be auctioned by the State and there  would be no question of sale of resin in the open market and in this situation, it would be totally irrelevant to import  the concept  of market  price with  reference  to which the  adequacy of the price charged by the State to the 2nd respondents  could be  judged. If  the State were simply selling resin,  there can  be no  doubt that  the State must endeavour to obtain the highest price subject, of course, to any other  overriding considerations  of public interest and in that  event its  action in  giving  resin  to  a  private individual at a lesser price would be arbitrary and contrary to public interest. But, where the State has, as a matter of policy, stopped  selling resin  to outsiders  and decided to allot it  only to industries set up within the State for the purpose of  encouraging industrialisation,  there can  be no

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scope for  complaint that  the State  is giving  resin at  a lesser price  than that  which could be obtained in the open market. The  yardstick of  price in the open market would be wholly inept,  because in  view of  the State  policy, there would be  no question  of any  resin being  sold in the open market. The  object of  the State  in such  a case is not to earn revenue  from sale of resin, but to promote the setting up of  industries within  the State.  Moreover,  the  prices realised at the auctions held in December 1978? January 1979 and April 1979 did not reflect the correct and genuine price of resin,  because by  the time  these auctions  came to  be held, it  had become known that the State had taken a policy decision to  ban export  of resin  from its territories with effect from  1979-80 and the prices realised at the auctions were therefore scarcity prices. In fact, the 1364 auction held in April 1979 was the last auction in the State and since  it was  known that  in future  no resin  would be available  for  sale  by  auction  in  the  open  market  to outsiders, an unduly high price of Rs. 700/- per quintal was offered by the factory owners having their factories outside the State,  so that  they would  get as  much resin  or  the purpose of feeding their industrial units for some time. The counter affidavits  show that,  in fact,  the  average  sale price of resin realised during the year 1978-79 was only Rs. 433/- per  quintal and  as compared  to this  price, the 2nd respondents were  required to  pay price  of  royalty  at  a higher rate  of Rs.  474/- per quintal for 3500 metric tones of resin to be retained by them under the impugned order. It is in  the circumstances impossible to see how it can at all be said  that  any  benefit  was  conferred  on  the  second respondents at  the cost  of the  State. The  first head  of challenge against  the impugned  order must,  therefore,  be rejected. RE. GROUND "B":      It is  difficult to  appreciate how  the impugned order could be assaulted on the ground that it created monopoly in favour  of  the  2nd  respondents  or  imposed  unreasonable restriction on  the right  of the  petitioners to  carry  on tapping business under Article 19(1) (g). The impugned order did not  hand over  the tapping of the entire forest area in the State  exclusively to  the 2nd respondents so as to deny the  opportunity   of  tapping   any  forest  areas  to  the petitioners. What  was done  under the  impugned  order  was merely to  allot 11,85,414  blazes in the inaccessible areas of Reasi, Ramban and Poonch divisions to the 2nd respondents so that  the 2nd respondents could have an assured supply of 3500 metric  tones of  resin for  the purpose of feeding the factory to be set up by them in the State and a large number of blazes  amounting to  about 68 lacs in other forest areas of  the  State  were  left  available  for  tapping  by  the petitioners and  other forest  contractors. No  monopoly was created in favour of the second respondents; the petitioners and other  forest contractors could bid for wage contract in respect of  the other blazes which were more than five times in  number   than  the   blazes  allotted   to  the   second respondents. The  petitioners in  writ petition 481 of 1979, in fact,  obtained a  wage contract  for extraction of resin from an easily accessible forest in Rajouri Division for the aggregate sum  of Rs.  2,80,250/- in  the year  1979-80  and though it  is true that the petitioners in writ petition No. 482/79 did  not obtain any wage contract for tapping in this year, it  was not  because blazes  were  not  available  for tapping, but  because the  petitioners  did  not  get  their registration renewed.

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1365 RE. GROUND "C"      The  third   and  last  ground  of  challenge  is  also difficult to  sustain. We  fail to see how the action of the State in  making the  impugned order  in favour  of the  2nd respondents could  be said  to be arbitrary or unreasonable. It is  clear from  the facts  we have  narrated above and we need not  repeat those  facts again,  that the State was not unjustified in  excluding 11,85,414  blazes situate  in  the inaccessible areas  of Reasi,  Ramban and  Poonch  Divisions from the  auctions, since  the past  experience showed  that even on  the basis of royalty without load, it was difficult to attract  bidders and  the maximum that could be obtained, and that  too only  in one  solitary year,  was Rs. 2.55 per blaze without  load, which was an absurdly low return and it was, therefore,  felt quite  justifiably, that  it would  be futile to  include these  blazes in the auctions for tapping on wage  contract basis.  The State  also could  not award a contract simpliciter  for tapping  on the  basis of  royalty with or without load, because, as a matter of policy, with a view to  encouraging industrialisation,  the State  did  not want resin to go outside its territories but wanted it to be used only  for the  purpose of  feeding  industries  set  up within the  State and even if a condition could legitimately be imposed  on the  contractor that he should sell the resin extracted and  retained by him only to industries within the State, it  would be  difficult to  ensure observance of such condition and moreover the object of the State to make resin available to  the local  industries at  a  reasonable  price might be frustrated, because the contractor taking advantage of  scarcity   in  supply   of  resin,  might,  and  in  all probability would,  try to  extract a much higher price from the industries  needing resin.  It was  thus found  to be an impracticable proposition to tap these blazes either on wage contract basis  or on  the basis  of royalty with or without load.      Now the  2nd respondents  had made an offer for putting up a  modern plant  for manufacture of resin, turpentine oil and other  derivatives within  the State  provided they were assured a  definite supply  of resin  every year. But having regard to  the commitments  already made  by it,  it was not possible for  the State  to make  any definite allocation of resin to  the 2nd  respondents and  a proposal was therefore mooted that 11,85,414 blazes in inaccessible areas of Reasi, Ramban and  Poonch Divisions  could be  allocated to the 2nd respondents for  tapping on certain terms and conditions, so that the  2nd respondents  could tap these blazes and out of the resin extracted, obtain for themselves an assured supply for running  the factory  to be  set up by them and make the balance quantity available to the State for its own purpose. The 2nd respondents were agreeable to this proposal 1366 and they  accordingly put forward an alternative proposal on these  lines   for  the   consideration  of  the  State  and eventually, the  impugned order came to be made in favour of the 2nd  respondents. We have already discussed the terms of the impugned  order and  it is  clear from what we have said that the  impugned  order  was  unquestionable  and  without doubt, in  the  interest  of  the  State  and  even  with  a microscopic examination  we Pail to see anything in it which could possibly  incur the  reproach of  being  condemned  as arbitrary or  irrational. It  is true that no advertisements were issued  by the  State inviting  tenders  for  award  of tapping contract in respect of these blazes; or stating that tapping contract would be given to any party who is prepared

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to put up a factory for manufacture of resin, turpentine oil and other  derivatives within  the State,  but  it  must  be remembered that  it was  not  tapping  contract  simpliciter which was being given by the State. The tapping contract was being given by way of allocation of raw material for feeding the factory  to be  set  up  by  the  2nd  respondents.  The predominant purpose of the transaction was to ensure setting up of  a factory  by the  2nd respondents  as  part  of  the process of  industrialisation of the State and since the 2nd respondents wanted  assurance of  a definite supply of resin as a  condition of putting up the factory, the State awarded the  tapping  contract  to  the  2nd  respondents  for  that purpose.  If   the  State   were  giving   tapping  contract simpliciter there  can be no doubt that the State would have to auction or invite tenders for securing the highest price, subject,  of   course,  to  any  other  relevant  overriding considerations of  public weal  or interest,  but in  a case like this  where the  State is  allocating resources such as water,  power,   raw  materials  etc.  for  the  purpose  of encouraging setting up of industries within the State, we do not think  the State  is bound  to advertise  and  tell  the people that  it wants  a particular  industry to  be set  up within the State and invite those interested to come up with proposals for the purpose. The State may choose to do so, if it thinks  fit and in a given situation, it may even turn to be advantageous  for the  State to do so, but if any private party comes  before the  State  and  offers  to  set  up  an industry, the  State would  not be  committing breach of any constitutional or  legal obligation  if it  negotiates  with such  party  and  agrees  to  provide  resources  and  other facilities for  the purpose  of setting up the industry. The State is  not obliged  to tell  such party;  "Please wait. I will first  advertise, see  whether  any  other  offers  are forthcoming and  then after  considering all  offers, decide whether I  should let  you set up the industry." It would be most unrealistic  to insist on such a procedure particularly in an  area like  Jammu and  Kashmir  which  on  account  of historical,  political   and  other   reasons,  is  not  yet industrially developed  and where  entrepreneurs have  to be offered attractive terms in order to persuade them to set up an industry. The State 1367 must be  free in  such a  case to  negotiate with  a private entrepreneur A  with a  view to  inducing him  to set  up an industry within  the State  and if  the State  enters into a contract with  such entrepreneur for providing resources and other facilities  for setting  up an  industry, the contract cannot be assailed as invalid so long as the State had acted bona fide,  reasonably and  in public interest. If the terms and  conditions   of  the   contract  or   the   surrounding circumstances show that the State has acted mala fide or out of improper  or corrupt  motive or  in order  to promote the private interests  of someone  at the cost of the State, the Court will  undoubtedly  interfere  and  strike  down  State action as  arbitrary, unreasonable  or  contrary  to  public interest. But  so long  as the  State action is bonafide and reasonable, the  Court will  not  interfere  merely  on  the ground that  no advertisement was given or publicity or made or tenders invited. Here, the 2nd respondents approached the State for  the purpose  of setting  up a  modern factory for manufacture of  resin, turpentine  oil and other derivatives and asked for allocation or resin and the State, with a view to offering  an incentive  to the  2nd respondents to set up the factory,  made the  impugned order  awarding the tapping contract in  respect of  these blazes to the 2nd respondents

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as a part of a package deal. We have already pointed out and w need  not  repeat  again,  that  the  impugned  order  was reasonable and  in the  interest of  the State  and  in  the circumstances, we  are clearly of the view that it cannot be assailed as  invalid merely  because no  advertisements were issued inviting  offers for  setting up a factory and taking the tapping contract as an integral part of the transaction.      It  may,   however,  be  pointed  out  that  though  no advertisements were  issued by the State, the Chief Minister of Jammu  and Kashmir  had in  the course  of three speeches delivered by  him-one in  Bombay. the  other in Calcutta and the third  in New  Delhi invited  entrepreneurs  to  set  up industries within  the State  with a  view to bringing about rapid industrialisation  and  economic  development  of  the State by  utilising its  "peculiar  natural  resources"  and converting them  into finished or semi-finished products and promising "various  forms of  assistance and incentives" for the purpose.  These speeches  were widely  advertised in the newspapers and  it was,  therefore, known  to  entrepreneurs that the  State would  be willing  to provide  resources and other facilities  to those who were interested in setting up industries within  the State  and, in  fact. the  State  was anxious to  attract entrepreneurs to start industries and it was in pursuance of this invitation that Prabhat Tarpens and Synthetics Private  Limited, Dujodwala  Resins and  Tarpens. Pvt. Ltd., Pine Chemicals Limited and the second respondents made their respective offers for putting up factories within the State.  It is,  there fore,  in any event not correct to say that the petitioners had no oppor- 1368 tunity of  making an  offer of  setting  up  a  factory  and obtaining a tapping contract for the purpose.      It is  also necessary  to point  out that the claims of the petitioners  in writ  petition No.  481 of 1978 and some others were  considered by  the Forest  Minister  and  other forest officials  at the meeting held on 25th December, 1978 and applying  the criterion  of "financial  status  and  its distillation in  the factory"-which criterion cannot be said to be  irrational or  irrelevant-the application  of the 2nd respondents was  unanimously accepted.  This decision cannot be said  to be  mala fide or prompted by improper or corrupt motive. There  is, in fact, no evidence before us to show or even as  much as to suggest that any favour was conferred on the 2nd respondents at the cost of the State or that the 2nd respondents were  preferred to some others without any basis or justification.  The petitioners  in writ petition No. 481 of 1979  had very  little experience of extraction of resin, since they  had taken  tapping contract  for the  first time only in  1978-79 and  so  far  as  processing  of  resin  is concerned, they  had no  experience at  all, as they did not have any factory for processing of resin nor had they at any time in  the past, participated in any auction of resin. The petitioners  in   writ  petition   No.  481   of  1979  were principally grocery  and provision merchants and though they had taken  some tapping  contracts in  the past, they had no experience at  all in processing of resin since they did not own any factory. The 2nd respondents, on the other hand, had large experience  in extraction  of resin  from inaccessible forests  of   Poonch  Division   and  they   also  possessed considerable experience  in distillation  and processing  of resin since  they had  two factories,  one in Hoshiarpur and the other  in  Delhi.  The  State  had  in  fact  given  two contracts to  the 2nd  respondents in  the year  1974-75  to install factories  for manufacture  of resin  and turpentine oil in  the public  sector and  these  contracts  have  been

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carried  out   by  the   2nd  respondents   to  the   entire satisfaction of the State. Therefore, so far as the relative merits of the petitioner on one hand and the 2nd respondents on the  other  were  concerned,  the  2nd  respondents  were definitely superior  and it  cannot be  said that  the State acted  unreasonably   or  contrary  to  public  interest  in preferring the 2nd respondents and permitting them to put up a  factory  within  the  State  and  awarding  them  tapping contract in  respect of  these blazes for the purpose of the factory. It  may be  pointed that  the petitioners  in  writ petition No. 482 of 1979 had not even got their registration renewed for  the year  1979-80 and hence no tapping contract could possibly  be given  to  them.  We  must,  accordingly, reject the  third ground of challenge urged on behalf of the petitions. 1369      We are,  therefore,  of  the  view  that  there  is  no substance in  any of the contentions raised on behalf of the petitioners and  it was  for this  reason that  by an  order dated 15-2-1980, we dismissed both these writ petitions with no order as to costs. S.R.      Petitions dismissed. 1370